tv Nightly Business Report PBS July 13, 2012 6:30pm-7:00pm EDT
>> this is n.b.r. >> susie: good evening, i'm susie gharib. solid earnings from j.p. morgan, but the bank says its loss on risky trades ballooned to nearly $6 billion. >> tom: i'm tom hudson. banking analyst fred cannon tells us why he's still recommending j.p. morgan stock and what to expect in the second half of the year. >> susie: and you may be one of millions of americans getting a health care rebate. we'll tell you why. >> tom: that and more tonight on "n.b.r.!" >> tom: j.p. morgan's trading mess lost much more money than first thought-- nearly $6 billion. that's almost triple the original estimate.
still, the nation's biggest bank still managed to post a $5 billion profit in the second quarter. including items, earnings per share were $1.21, while down from a year ago, that's well above wall street estimates. suzanne pratt has the story. >> reporter: j.p. morgan had so much news to explain to wall street it held a two-hour analysts meeting here at company headquarters today after it released its earnings report. here's what c.e.o. jamie dimon had to say about the bank's big blunder. >> we are not proud of this moment, but we are proud of our company. we are not making light of this error, but we do think this it's an isolated event. one of the reasons you do hold capital is for known and unknown events. >> reporter: the bank revealed those unknown events could still mean another $1.7 billion in losses, down the road. managers tied to the bad trades were fired and j.p. morgan plans to revoke some of their back pay. as for a so-called claw back for
dimon himself, that's still on the table. >> i would be very, very surprised if he does not take a substantial hit to his compensation this year. and you know they're going after a full two-year clawback for these people. >> reporter: nevertheless, analysts were impressed by the quality and quantity of j.p. morgan's results, which included suprisingly strong loan demand. >> it happened at a fortunate time for them because as the numbers showed today they've been able to power through earnings even taking a close to $6 billion loss. >> reporter: dimon says the bank has put most of its whale-sized problem behind it. but, analysts say it will take time to recover from the reputational black eye. suzanne pratt, "n.b.r.," new york. "nightly business report" is brought to you by: captioning sponsored by wpbt
>> tom: banking stocks lead the rally on wall street today, susie, helping the dow and the s&p end a six-session losing streak. >> susie: tom, investors liked those j.p. morgan results and snapped up shares. j.p. morgan surged almost 6% and the financial sector overall jumped almost 3%. that pushed the dow to its best performance this month, up more than 200 points or 1.6 the nasdaq added 42 and the s&p rose 22 points. >> susie: despite the popularity of j.p. morgan's stock surge today, our next guest says there are still outstanding issues hanging over the bank. when i talked with fred cannon of k.b.w. today. i asked him what issues worry him the most.
>> well, the key outstanding issues, and remember, tay have built a strong balance sheet, are europe. what about the big banks in europe, the big mortgages tie into those closely. what about the libor manipulation issue? they're one of the panel member that is tied into those issues. >> susie: break that down into pieces. in terms of the barclays scandal, as regulators and lawmakers investigate this, to what extent do you think j.p. morgan will be impotented? >> j.p. morgan was on the lieb or panel of banks that determine the rate. barclays got caught trying to manipulate the rate. all the member ever the panel are being investigated. we really just don't know yet if they were doing some of the thing that is barclays d. >> susie: and jamie dimon said there could be another $1.7 billion in losses related to the risky trading bets.
is that it? do you think the worst is over? >> we think the worst is over on this issue. the office in london, and the big bets they made. they shut down what they were doing and have taken $5 billion of hits. $1.6 billion would be bad, but it is contained at this point in time. >> susie: jx*i j.p. morgan surg. what do you think? >> it's capital liquidity, and the valuations are in the stock. a lot of earning potential isn't. so the knelt effect is we think it's a good one to be in at this point in time. >> susie: j.p. morgan made more mortgage loans and loans to small businesses. same with wells fargo which reported solid profits today. what is this telling us about the health of u.s. banks. >> banks are lenlding again.
if you look at three quarters, there's been a growth in bank loans which matched what's going on in gross national products. so banks are leppedin lending a. it's good domestically. >> the bad news is all the large banks have capital market challenges we're talking about. >> susie: so citigroup and bank of america are reporting next week. what's the message from those banks? >> they've been more challenged than j.p. morgan and wells fargo. we don't expect the strength that we saw in these two banks to be reflected. that said, the core issues, loan growth in the united states, a relatively stable banking system over here should provide some positive backdrop for both companies >> susie: is this a turning point for the financials? how do you see the financial sector doing? >> we think it's a turning point in terms of domestic banks. we think there's good things going on. mortgage lending, overall business lending is picking up, and the credit position of
these banks is very good. we think that's a good backdrop for the rest of the here in the u.s. but faition t issues in europe, whether it's libor scandals or french and spanish and italian banks are still a big overhang. we're recommending investors to stay local with their investments in financials. >> susie: so investors want to stay local. what are stocks you're recommending? >> we think suntrust. it's a bank that has come through the financial crisis in good shape. they still have a lot of leverage. they can improve a lot on credit quality. we saw good numbers today, and the mortgage business that they have can produce some good numbers. so i think suntrust is our top pick. and we like the credit card companies. >> susie: any disclos uppers to make? >> i have no involvement in those companies. >> susie: thank you, fred cannon of kew. >> tom: more on the j.p. morgan trading loss and the bank's response. janet tavakoli is president of
tavakoli structured finance. here is the heart of j.p. morgan's admission today regarding its near $6 billion trading loss. in the release today, the reason we discovered information raises questions about the integrity of the trader marks and sx*pgs that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. who is accountable for this? >> well, tom, first of all, that's the bomb shell. j.p. morgan just said what they said -- is that the whole situation suggests that traders were knowingly mismarking their books. now that's criminal behavior and that's fraud. so it looks as if they're going in the drek of prosecuting people. now they've already fired people. they're clawing back bonuses. but it looks as if it's going further. so the individuals involved, of course, they are responsible. now the question is, who in
upper management, including jamie dimon, will be held accountable, and it seems jamie dimon should be losing his job over this. this unit remited to jamie dimon. this was basicalty a large out of control bank within a huge bank. and -- >> tom: the magnitude. this strategy generated $2 billion in profit over the previous four years before this year. deposit money wasn't lost, and you know this, defenders say the trading loss was not all that material, considering the bank still is able to report a profit today. >> well, that's ridiculous. now look at what you just said, that this unit reported 2 billion in profit over several years. now they have $5.8 billion in losses year to date. the losss are climbing. the losses swap the profits they reported previously,
which shows you how outside this trade was relative to the size of this unit, and this unit itself is a large bank within a tremendously big bank. now this is one silo, one unit that blew up at j.p. morgan, and j.p. morgan has trouble elsewhere. the way to look at this isn't in the context of the size of j.p. morgan, but the size of this unit. >> now in terms of the profit that is j.p. morgan reports, it should be reporting profits. it has a $2.3 billion profit sheet. the profits toots reporting relative to the size of their balance sheet are not big. >> tom: clearly not a fan here, janet. j.p. morgan said he'll restate the first quarter as a result of the trading loss. material weakness is a quote from the release, and taking steps to remediate the problems. clearly you are not satisfied that the bank has a handle on this, let alone the culture that led to this trading loss. >> tom, what has been refeeled
in the press is embarrassing detail after embarrassing detail. taken as a whole, it adds up to an utter failure of corporate governance. jamie dimon has a sarbanes will oxley issue. he signed off on statements saying the management was adequate and corporate governance was adequate, and the unit that reported to him was for from it. >> tom: highly critical and certainly will continue. janet tavakoli with tavakoli finance in chicago. >> susie: be on the lookout for
>> susie: be on the lookout for a healthcare rebate check in your mailbox this summer. it's part of a new rule in the "affordable care act" aimed at keeping health insurance companies accountable and premium costs in check. but this year, many insurance companies didn't meet the new standards. so together, they'll be refunding more than $1 billion to their customers. sylvia hall reports. >> reporter: it's called the 80- 20 rule, or the medical loss ratio. the goal: to hold down health insurance costs by controlling the amount of money companies pay for care. insurance companies have to spend at least 80% of customers' premium payments on medical costs, not administrative ones like salaries and investments. for large group accounts, it's 85%. if a company doesn't make the ratio, it has to refund the difference to consumers by august first. a lot of companies didn't make it this year. in all, more than 12 million customers are expected to get rebates, totaling more than $1 billion nationwide. the rebate amounts vary greatly,
but they are expected to average around $150 per household. >> insurance companies are clearly making consumers pay too much for health care, and the rebates are long overdue. >> reporter: consumer advocates say the payouts are great, but the rule might not be effective. it could actually encourage companies to spend more on health care to avoid cutting other costs. and the insurance industry says the rule just misses the point. >> this provision places an arbitrary cap on what health plans can spend on so-called administrative costs. so it's completely ignoring the real driver of rising health insurance premiums. >> reporter: whether or not the rebates affect the cost of health care in the long run, they may need to show up on tax returns. >> last year, you got a tax break for paying insurance premiums. this year, the insurance company is giving you some of that money back, so uncle sam wants part of that tax break back. >> reporter: that's also true for companies paying for employee health care premiums. >> remember they deducted their health care costs in 2011, and
they paid the bulk of those health care costs. so those businesses now have come they've got to report when they get their refund back. >> reporter: mccormally says the rebates could confuse people during tax season this year, since not everyone took last year's deduction for health . reca care. sylvia hall, "n.b.r.," washington. >> susie: the founder and c.e.o. of bankrupt brokerage firm p.f.g. best was arrested today and charged with making false statements to regulators about the value of customer funds. appearing in u.s. district court today, russell wasendorf senior was accused of misappropriating
more than $200 million of customers' money. the 64-year-old commodities broker tried to commit suicide monday outside his company's offices in cedar rapids, iowa. authorities say wasendorf confessed to the crime in a suicide note, claiming he felt guilty about misusing client funds for at least 20 years. >> susie: the charges against wasendorf come as u.s. regulators today approved the so-called "corzine rule" to protect customer funds at brokerage firms. it's named after jon corzine. the former c.e.o. of failed brokerage m.f. global. the rule requires a firm's chief executive to sign off on big withdrawals from customer accounts. >> for the third year in a row some are worried about a global sdmk slowdown. stay on the defense. jasob is back with us investor of strategy with us in philadelphia. jason. the scare is over the past couple of years ended with a nice fall rally for stocks.
could it be the same this fall? >> yeah, we did think eventually we may see the monetary policy come in more sig kantdly, but in the near term basis economic indicators continue to point in a negative direction indicating that we'll see further weakness, and the reality is in order to get the federal reserve and other central banks that we want to have in order to get that lift in the equity market, we might have to see some further weakness in the economy first, and for that reason, we're remaining more on the defensive line. >> tom: and you're looking to consumers to stay defensive to colgate pal mauliv palmolive. >> would you put more money to work? >> we would. colgate is a high quality stock buktd, which means we're taking less risk in equities. the counter to that is we're taking more risk in fixed income, and stay away from the two extremes of full risk on
equity and snow risk on the cash and treasuries. >> tom: that's an interesting take. more risks with fixed income in that environment, and lead you to high yields and using a high yield exchange fund. it has a nice rally. why are you willing to take on the extra credit risk? >> when we return to put more of the assets in the middle. we're trying to find the best risk adjusted return. high yield has circumstances here today in this environment where you're actually getting paid six to seven percent on coupeons for what are credit instance. more protected credit. long term, it's half of the risk of equities. you're getting a return that's competitive. maybe not as high as, but pretty competitive with what you're getting in equities through a longer term time frame. >> tom: we saw you in august and you liked equities, philip morris rallied nicely,
up 35%. night work there. yum brands up 26%, you still like these two stocks? >> we do. both of those fit into that quality basket, and are continued for us. >> yum branlds a little less so, but philip morris fits nicely. >> tom: and the etf with japan, down one and a half percent, and templeton global bond found down 6%. you like these? >> they haven't worked quite as well. what that boils down to is the international flavor of those allocations. one is in japan with equities, and the other has a fairly large currency exposure. that hasn't been as good, but we think long term prospects are fine. >> tom: do your clients have positions in everything we mentioned today? >> yes, they do. >> tom: staying defensive, jason pride. >> susie: and following occupy a story we told you about last night, new legislation working
its way through congress that would make it easier for states stop sales. on online purchases. right now, the biggest e-tailer amazon.com charges state sales tax in just a few states, but it will start collecting in more states as it expands across the country. in tonight's commentary, "financial times" retail correspondent barney jopson explains that taxes are just one hot-button issue for amazon. >> amazon is the villain of the retail scene to a lot of its bricks and mortar rivals, a ruthless operator whose low prices and speedy delivery are robbing them of sales. but it's having a very different effect on other businesses. it's actually helping them to grow. this is because amazon no longer just a retailer. it's also becoming an infrastructure company, which rents out its website, its customer service team, its warehouses and its databases for others to use. that means if you want to sell something online, you can focus on finding your products, and then plug yourself into amazons systems, and it will do the rest.
you also get access to the 85 million people who visit its site every month. but there are downsides. amazons takes a cut of your sales. it also takes away your independence. and amazon can look at what you're selling and take the best ideas for itself. it's becoming a network business like stock exchanges, power grid operators and credit card companies. it's making the world more efficient, but it's also storing up systemic risks. if something breaks down at amazon, suddenly a lot of people are going to suffer. so if amazon wants to become the back office for all forms of online commerce, its going to need to persuade regulators and lawmakers, as well as business and consumers, to trust t it. i'm barney jopson. >> susie: next week on n.b.r.: earnings season kicks into high- gear, as citibank google and general electric all report quarterly results. plus, fed chairman ben bernanke and treasury secretary timothy geithner will be in the hot seat as they testify on capitol hill on the barclay's rate-rigging scandal. and, we take an-depth look at the impact of immigration on the u.s. economy.
today's gains helped improve the weekly performances for the major indices. the dow industrial average was essentially unchanged from a week ago. the nasdaq lost 1% this week. the s&p 500 is 0.2% higher tonight compared to last friday evening. thanks to the better than expected earnings from j.p. morgan, banking stocks led the charge. the financial sector jumped 2.8%. industrials and materials just under 2% each. all ten major stock sectors were higher. j.p. morgan saw the big gains, up 6%. before the first disclosure of its big trading loss, j.p. morgan was trading close to $41. with today's rally, it's just over $36. other big banks got a boost. citi rallied 5.4%. bank of america closed higher by 4.5%. goldman sachs gained 3.6%. this trio of banks reports second quarter results next week. both mastercard and visa shares were stronger today, up more than 1% each during the regular session. they each added about 2% in after hours trading.
two financial focused stocks to watch next week will be visa and mastercard. after the closing bell the two payment processing firms agreed to settling a lawsuit with retailers over credit and debit card fees. the agreement calls for the two companies to pay retailers $6.6 billion. and in what could have wide- ranging implications for consumers, it also allows stores to charge higher prices for customers using credit cards. both mastercard and visa shares were stronger today, up more than 1% each during the regular session. they each added about 2% in after hours trading. printer and imaging company lexmark is the latest to cut its second quarter outlook. shares fell hard today after last night's warning, sinking 16.3%. volume jumped almost ten fold with the stock sitting at a two and a half year low. weakness in europe get some of the blame for the warning. the concerns hit hewlett-packard shares, falling 1.9%. it was the biggest percentage loser among stocks making up the dow industrial average. wholesale inflation was unexpectedly rose for the first time in four months. producer prices were up 0.1%.
dwl five of the most actively traded e.t.f.'finished higher. the biggest gain the financial.f exchange traded fund, up 2.8%. and that's tonight's "market focus." >> susie: sometimes taking criticism isn't easy, even if it's constructive. this week lou's been thinking about the three "c"s. here's author and educator lou heckler. >> i get lots of online surveys from airlines and hotels when i travel. they ask about the aspects of their service they want to improve. we all need people to help us grow and improve? if the feedback is helpful and constructive and not the bashing and smashing i read in so many online forums. instead, concentrate on the three "c"s of feedback. comfort. sometimes we just need someone to give us a knowing back pat and just listen. we aren't looking for solutions from them? just to listen. clarify. this person says to us, "i have
noticed your actions in certain situations and they aren't going to be helpful to you. let me show you how it's coming across." confront. yes, this is the toughest assignment for all. this is someone who cares enough about you to say, "just a minute, i think you are way off- base here and i want to tell you this behavior needs to stop." i can't say if those three "c"s will make us champions, but i do know that they will get you closer to your destination. i'm lou heckler. >> tom: and comfort, clarify and confront in times of stress here that we've seen lately. we've got a busy week next week. see you then, susie. have a great weekend. >> susie: lolts coming up. that's it for nightly business report. for friday the 13. have a great weekend everyone. we'll see you online at nbr.com and back here on monday. "nightly business report" is brought to you by: